New York Markets After Hours

Mattel swings to loss; Hasbro reports higher profit

AndriaCheng

MattAndrejczak

NEW YORK (MarketWatch) -- Mattel Inc., the world's largest toymaker, swung to a first-quarter loss on Monday, hurt by declining U.S. sales and higher costs.

Meanwhile, Hasbro Inc., the No. 2 toymaker, reported higher profit, helped by products such as Transformers. Hasbro said it's confident that it will achieve its full-year financial goals.

Mattel shares lost 8% to close at $20, while Hasbro shares rose nearly 10% to $34.65.

Mattel
MAT, +1.84%
had a loss of $46.6 million, or 13 cents a share, compared with profit of $12 million, or 3 cents, a year earlier, the El Segundo, Calif.-based company said Monday.

The toymaker pegged the loss on higher litigation, commodity and testing costs. It also blamed foreign exchange losses from currency fluctuations in Latin America. Mattel holds U.S. cash balances in a Latin America subsidiary.

Sales dropped 2% to $919.3 million for the three months ended March 31.

Hasbro
HAS, +0.85%
said profit rose to $37.5 million, or 25 cents a share, from $32.9 million, or 19 cents, a year earlier. Sales increased 13% to $704.2 million.

In addition to Transformers, Hasbro's other toy lineup including Littlest Pet Shop and Star Wars also helped to spur demand. The Pawtucket, R.I.-based company said it expects to grow both sales and per-share profit in 2008.

The earnings report prompted analyst Sean McGowen of Needham & Co. to lift his stock-price target on Hasbro to $42, from $37, and his 2008 profit estimate to $2.15, from $1.95. He rates Hasbro shares a buy.

Mattel, on the other hand, has been hurt by a 12% decline in its U.S. sales of Barbie dolls. The product line has been struggling amid stiffer competition from Hannah Montana dolls that hit toy shelves last year.

This year, Mattel is looking to Hollywood to boost sales. The toymaker is selling toys tied to upcoming movie releases such as "Speed Racer" and "Kung Fu Panda."

Competition should be fierce. Hasbro, which has long benefited from a close relationship with movie studios, is selling toys connected with the releases of "Indiana Jones and the Kingdom of the Crystal Skull," "Iron Man" and "The Incredible Hulk."

Looking ahead, Mattel said price increases should aid its profit in the second half of the year. Price hikes, in the range of 5% to 9%, become effective in June.

Whipsawed by the recall of 21 million toys last year, Mattel has been reducing its supplier base in China. Broadly speaking, toy researcher Lutz Muller of Klosters Trading Corp. estimates the cost of making toys in China will be at least 10% to 15% above 2007 levels.

Steeper costs are hurting Mattel's gross profit margin.

"The story of the quarter was pressure in margins," said Wedbush Morgan Securities analyst Chris White, who rates Mattel a buy.

In the first quarter, Mattel's gross margin fell to 43.2%, down from 44.5% a year ago.

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